The company's stock had been trading nearly 40% below its
pre-crisis peak, even as many other Dow components had already
moved back up to levels seen back in early 2008.

My suggestion that Boeing could be the best rebound stock in
the Dow was on the mark, as shares have risen 66% since then,
compared with a roughly 15% rise in the Dow Jones Industrial
Average and the S&P 500 index.

Boeing appeared poised to deliver roughly 120
Dreamliners (787s) a year by mid-decade. Arment thinks
that figure now looks conservative, predicting the
company will crank out 160 by 2016.

The "bottom-fishing" angle for Boeing has likely played out --
but that doesn't mean it's time for profit-taking. In fact,
Sterne Agee analyst Peter Arment sees an additional 40% upside
ahead.

In general, I tend to steer clear of analysts' price targets
as they are often based on near-sighted assumptions and typically
fail to reflect multi-year growth drivers and challenges. But in
this case, Arment backs up his $164 price target with a very
cogent analysis, worth reflecting here.

First, let's get the bad news out of the way. Boeing is a
leading defense contractor, and the company's revenues from Uncle
Sam are expected to shrink, from $32.6 billion in 2012 to $26.5
billion by 2016. Operating profits in this segment are also
expected to fall roughly $500 million, to $2.5 billion by
then.

But it's the commercial aircraft segment that keeps getting
stronger. As I noted in my look at the company a year ago, Boeing
appeared poised to deliver roughly 120 Dreamliners (787s) a year
by mid-decade. Arment thinks that figure now looks conservative,
predicting the company will crank out 160 of the high-margin
fuel-efficient planes by 2016.

In addition, the analyst notes that Boeing has been building a
strong order book for its 737-MAX, an upgrade to the 50-year-old
workhorse, which is expected to enter production in 2017. Boeing
already has more than 1,500 orders in hand for the plane, thanks
to simulations that show the 737-MAX burns less fuel than
comparable Airbus offerings.

By 2018, he thinks Boeing will be producing 800 planes
annually. That's up from 500 in 2011 and 600 in 2012. And that
kind of growth will have a direct impact on profit margins and
free cash flow.

Source: Sterne Agee

Arment thinks Boeing's operating margins won't surge until
later in the decade when both the 787 and 737-MAX are being
produced in high volumes. The gain of roughly 4 percentage points
in operating margins from 2016 until 2020 isn't merely a guess.
We know how much it costs for Boeing to make a plane, and we know
the average selling price of these planes, so barring a major
economic slowdown, Boeing should be able to meet these
targets.

Rising margins in the commercial aircraft division should help
fuel robust growth in free cash flow. Arment sees it rising from
$4.9 billion this year to more than $10 billion annually by later
this decade. And that spells greater shareholder returns.

In recent years, Boeing's dividend has suffered from benign
neglect rising from around $1.60 a share in 2008 to a current
$1.94, which is a 4% compound annual growth rate. Boeing is
lavishing more attention on buybacks, with a current plan calling
for $1.5 billion to $2 billion in further buybacks
underway.

But as the share price rises higher, buybacks make less sense,
so Boeing may look to more aggressively boost its dividend in
coming years. Applying $5 billion of its annual free cash flow to
its dividend would boost it to roughly $6.50 a share.

So how does Arment arrive at his $164 price target? By
applying a 12 times multiple to projected 2015 free cash flow.
Frankly, that seems a bit aggressive, as most large-cap stocks
rarely trade for more than eight or nine times forward free cash
flow. Arment's view: that target multiple is justified "given
peak free cash flow generation is still two years later in
2017."

Here's how you should look at it. You can either follow the
lead of other analysts who will steadily bump up their price
target with each passing year, until they too have $160 or $170
price targets a half decade from now. Or you could simply focus
on Arment's long-term view -- and buy shares now before they
begin inching their way higher.

Risks to Consider:
There's a decent chance that the global economy will face a
major slowdown at some point in coming years, which will push
shares of Boeing temporarily out of favor.

Action To Take-->
I love this kind of stock recommendation from a Wall Street firm.
It shows a far-sighted view that gets away from quarterly
earnings analysis, and is backed up with solid evidence. Few
companies have such a tremendous backlog in hand as Boeing does,
giving the company a leg up in terms of long-term predictability
and visibility -- which investors crave.